I’ve been getting more and more calls from clients wanting to rush out and go look at an unbelievable deal they found searching on the MLS.  About 99% of the time, the home they have found is a short sale. 

Short sales are a complicated process.  This blog post is about how they are priced.  To understand what a short sale is, follow this link… http://hoffee.com/foreclosure_short_sale.aspx

Just today I found a new listing for a 7000 square foot home sitting on an acre lot at the mouth of Little Cottonwood Canyon in Sandy listed for $449,000.  I’d buy it sight unseen.  The land alone is worth close to that.  Incidentally, this same property has been on the market with another brokerage for over a year and a half, but the asking price was $1,250,000.  The new listing is with a new broker, and is now a short sale.

Was the first agent that much overpriced?  Highly unlikely, but the fact the home didn’t sell indicates the property was at least somewhat overpriced.  With a drive-by, a look at county records, and a CMA, I estimate the property is worth about $875,000 - $975,000 (depending on interior materials and condition).  But now it’s listed for only $449,000!  The deal of a lifetime. 

Unfortunately for the potential buyer, that home will not sell anywhere near $449,000.  The unsuspecting consumer who stumbles across this listing is being duped.

Why does this happen?  Banks are overwhelmed with mitigating properties.  When a homeowner determines their best option to avoiding foreclosure is to attempt a short sale, they prepare and submit their short sale packet to the bank.  The bank however, won’t even look at the packet to see if the homeowner has demonstrated a sufficient hardship to qualify for a short sale until they also submit an offer from a willing and able buyer.

So there the packet sits, in a pile on some banker’s desk, until the homeowner’s agent submits an offer.  With the amount of competition out there, and even if a home is priced reasonably at market value, it could take months to obtain an offer. 

To avoid this eternal waiting period, and to get the bank to start processing the file in a timely manner, some agents are pricing properties ridiculously low to get a quick offer in to the bank. 

Even though bank procedures are the root of this problem, I believe it is unethical for agents to price properties in this manner.  They are creating false expectations to buyers, and even though they are doing it with good intentions, they appear dishonest.  Not to mention they are creating more unnecessary work for themselves and their fellow agents.  A more appropriate price point is 10% -15% below the low end of market value.